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Wednesday, April 24, 2013

Part X -- The Future: The definitive comparison of Champagne, Franciacorta, Prosecco, and Cava

Over the course of nine prior posts, I have explored varying characteristics (Origins, regulatory histories, macro-level characteristics, production zones, vineyards, fermentation and aging, wine styles, nonconformity, and production levels) of Champagne, Franciacorta, Prosecco, and Cava. In this post I explore the future of these wines.

Broadly speaking, the sparkling wine markets of the future will not map seamlessly to the markets of the past: they will differ in both size and scope. According to a study done by the research firm TNR (Glittering future for Champagne and Sparkling Wines, beveragemedia.com, 8/16/12), the share of drinking dollars devoted to Champagne and sparkling wines will grow from 5.1% to 7.8%, growth resulting both from increased consumption in existing markets as well as new drinkers in the developing world. According to TNS, spending in this category will increase by 4.2% in Brazil, 5,4% in Nigeria, 4.2% in South Africa, and 4.1% in the UK. Factors that could potentially mitigate these growth projections are perceptions that these wines are (i) indulgences and (ii) only to be consumed on special occasions.

Now let's look at the prognosis for each of the wines under consideration.

Champagne

Champagne has experienced a decline of 4.4% in shipments from 2011 to 2012 with declines occurring across all producer types: 5.3% for Growers; 4.2% for Champagne Houses; and 3.5% for Cooperatives. The challenges faced by Champagne include:

Grape price increases averaging 3.5% over the last three growing seasons .

Jean-Marie Bassillère, President of Unions des Maisons de Champagne sees the Champagne growth markets as being primarily non-European with an especial focus on America and Asia. Retooling for those markets will require extensive planning and bountiful resources (Giles Fallowfield, UK "not the future of Champagne growth," decanter.com, 4/2/2013). Luxurysociety.com (BRICs: The Future of Champagne, 5/28/12) supports the focus on emerging economies because (i) there are now more high-net-worth individuals in the Asia/Pacific region than anywhere else outside the US and (ii) they are conspicuous consumers of luxury items, a mantle that Champagne wears easily.

Africa is also viewed as a key target market of the future. Nigeria and South Africa have in common cultural linkages to European countries to go along with oil wealth (Nigeria) and an in-place and growing wine culture (South Africa).

The combination of declining regional consumption, shifts in destination markets, and increasing product costs may have a deleterious effect in the producers lacking strong brands. Without strong presence, the smaller players will be poorly positioned to pass price increases along to the market with attendant negative effects.

Franciacorta

As was shown in Part IX of the series, Franciacorta production levels pale in comparison to the levels of its compatriots. Further, only 8% of its production is exported. That dynamic represents a potential future problem for this wine. Small production and declining consumption could place a squeeze on the product. It will face the uphill task of seeking growth in strange new markets -- that may be more amenable to the luxury cachet associated with Champagne -- while its home base is being eroded. The region is blessed with deep-pocketed owners with capital from other industries and the ability to stay in the game until they figure it out.

Prosecco

A key driver of Prosecco's growth is the overall growth in sparkling wine sales in the US, UK, and Australia, a result of the breaking of the linkage between sparkling wine and celebration. In these countries sparkling wine has become an everday drink and this plays right into the hand of Prosecco, the quintessential everyday drink: low in alcohol, light, and affordable.

Also, Prosecco is a key ingredient (along with Aperol orange liquer and soda) in the Aperol Spritz, an aperitif that originated in Italy in the 19th century and is growing in popularity in the major Prosecco markets. According to italiandishblog.com, this aperitif is a great way to start a meal because it is (i) low in alcohol and (ii) light and refreshing.

And there is no wane in sight. First, the extra-territorial "imitators" have been cast into disarray by the shrewd strategic move of the Prosecco producers to take their future back into their own hands. The Prosecco DOC was first awarded in 1969 and was restricted to wines produced in the Conegliano-Valdiobbadene region. Growers felt that the brand was under attack by "imitators" using just the grape variety and moved to isolate those competitors by changing both the rules and the venue of the game. Prosecco growers agitated for, and gained regulatory acceptance of: (i) the extension of the Prosecco DOC to cover all of Friuli-Venezia-Giulia and approximately two-thirds of Veneto; (ii) promotion of the original Prosecco DOC to DOCG status; (iii) changing the name of the source grape from Prosecco to Glera; and (iv) restricting the use of the name Prosecco only to Glera sparkling wines produced within the delimited zones. The growers felt that these actions would serve to protect their territory, the brand, and the quality of Prosecco. The regulations authorizing these actions came into law in 2009.

Second, the Managing Director of leading Prosecco player Mionetto USA sees the current sales levels as just scratching the surface (shankennewsdaily.com). The core consumers of the product are 40- to 50-year-old women and this segment has been lightly penetrated. Younger drinkers are still experimental but they are trading up to Prosecco from "cheaper Cava." Deeper penetration of these markets, plus pushing into other market cohorts and demographics, provide plenty of opportunities for this wine in the future. As a matter of fact, the Prosecco region estimates that its production will grow from 220 million bottles today to 1 billion bottles within the next 25 years (Rebecca Gibb, Prosecco region "to grow fivefold," Decanter, 11/10/11).

Cava

Spain, currently with an 8.7% share of the sparkling wine market, is the only country projected to show declines (0.4%) in market share over the course of the study period. Cava is a low-cost alternative to Champagne in a future where consumption is declining locally and the newer markets are susceptible to luxury and status as buying decision points. In addition, Cava has some internal issues which need to be addressed in order to retain the long-term viability of the brand.

First, Cava has to deal with the causes and effects of a breakaway wine appellation. Ravento i Blanc had quit the Cava DO appellation because of its "low image." The DO is perceived to: be volume oriented; have no geographical distinction as it relates to climate and soils; have low viticultural standards (Jane Lawrence, decanter.com, 3/15/2013). Ravento I Blanco sees its proposed new appellation -- to be presented to the Consejo Regulador this spring -- as addressing the problems of the Cava DO. The appellation will be built around a small geographic area surrounding the Anoia River and will have tighter production rules than is the case for Cava DO. The risk for Cava is defections of producers to this, now competing, brand or the formation of multiple breakaway appellations by similarly disenchanted current members.

There is another faction within the Cava DO which acknowledges that the described problems exist but see breakaway appellations as a cowardly solution (Lawrence). According to this faction, change should be wrought from the inside where the benefits would accrue to all members. Towards that end, two recommendations will be made to the authorities as potential solutions to the problem: (i) shrink the appellation and (ii) have the entire Penedès region designated organic. The latter proposal is seen as adding value and allowing market differentiation.

Either way, Cava has to resolve these internal issues so that it can quickly pivot to addressing the shifting market dynamics. Its past success as an export-driven brand will stand it in good stead in this new environment. Cava needs for Champagne to be successful in the new markets so that it can come in and pitch itself as a low-cost alternative.

Well this has been a long and, on my part, pleasurable trip. I hope that the insights provided will aid in your thoughtful exploration of these brands in the future. Thank you for accompanying me on this trip.

For a look back at previous posts in the series, please click on the appropriate link below.